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      Preparing for an IPO is among the most intensive experiences a leadership team can go through. The transaction itself usually takes around six to nine months, but reaching that point demands two or three years of detailed, complex and highly technical preparation.

      Through a series of three expert panels at our recent 'Preparing for IPO Success - Are you Ready?' event, we unpacked the essentials for IPO readiness.

      Listing a company requires you to strengthen many of its fundamentals, bringing them up to the standards required of public companies.

      These include everything from your group structure, corporate governance, risk management and controls; to your business processes, financial accounting and reporting, corporate disclosures and executive reward plans.

      Svetlana Marriott
      Svetlana Marriott

      Head of UK Capital Markets Advisory Group

      KPMG in the UK

      Rob Crowley
      Rob Crowley

      Partner at UK Capital Markets Advisory Group

      KPMG in the UK

      The sheer amount of work is daunting – but the experience is extremely rewarding. To break it down, here’s an overview of what’s involved in five key steps:

      1. Define your vision and equity story

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      Clarify your objectives

      Start by asking yourself: what do you actually want from your IPO?

      It may sound obvious, but knowing what you want from your flotation in the first place is critical to achieving the right deal.

      It may be as simple as maximising value, but there are other benefits to going public: enhanced profile, greater access to capital, or rewarding and incentivising the talent that’s helped grow your business to this stage. 

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      Build your equity story

      Your driving purpose will in turn shape your equity story. Getting that right from the outset is critical. Investors will want to see a differentiated and consistent narrative that promises sustainable returns.

      Make sure it’s authentic. The management team must feel they own the story you take to investors; it shouldn’t be shaped for you by external advisors.

      Then make sure you have the numbers to back it up. Tie it to KPIs that you can report against as solid evidence of your story.

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      Start early and rehearse hard

      You can’t start thinking about your equity story six months out. Be clear at the beginning about what makes your business valuable to investors.

      Once you’ve crafted it, condense it into a short, compelling sales deck, and rehearse it thoroughly. You'll have to tell it to the market again and again, and deliver against it once listed, so know it inside-out.

      2. Structure your business for success

      • Topco or newco?

        A vital early decision to make is how to structure your organisation for IPO.
         

        At what level of the group will you choose to consolidate? Will you float the existing holding company, or a new entity created especially for the purpose?

         

        A newco has the benefit of no legacy constraints; you can determine its capital structure from scratch. But it can take six months to a year to establish. That’s partly because it may require clearance from local tax authorities, which is a slow process in some jurisdictions.
         

        The right approach will depend on a range of commercial factors: where your substance is; where you decide to list; plus your board composition, accounting framework and target investor profile.

      • Plan for the consequences

        Understand the impact of your chosen structure, including any tax implications and shareholder issues to resolve. These may necessitate complex shareholding structures, which take time to put in place.
         

        On the plus side, preparing for IPO is a useful opportunity for some legal entity rationalisation. It’s a chance to simplify your structure, eliminate surplus entities, and leave the group in a more streamlined shape.

      3. Get your financial information ready

      • Choose your accounting framework

        Where you decide to list will affect your accounting, reporting and auditing arrangements.
         

        Firstly, which accounting standards will you adopt? In the UK, it’s likely to be IFRS. Floating in the US will offer a choice between that and US GAAP.
         

        Both frameworks have pros and cons, and transitioning to either will have technical ramifications for your financial accounting and reporting. Understand and prepare for these well in advance.

      • Step up your transparency

        Even if you already use the right standards, there are additional reporting and disclosure requirements to get ready for – such as your earnings per share, executive reward plans and operating segments.
         

        Reporting on operating segments often catches firms out: it can expose underperforming business units. Spotting these quickly is vital, so they can be built into your equity story, rather than surprising investors further down the line.
         

        Two critical workstreams to get ahead with here are reviewing your audit files and historical financial information (for the previous three years). These are hard to fit in once the IPO process is up and running, so started as soon as you decide to float. 

      • Plan for audit change

        Going public will also require a change of auditor.
         

        In the UK, working with the same firm might be possible, but not the same team. In the US, you could have to change provider altogether.
         

        Either way, appoint your new auditor a year or two ahead of your flotation.

      4. Prepare for public life

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      Be ready for the shift

      Operating a public company is different to private ownership on many fronts.

      Compliance and disclosure obligations are greater; reporting becomes more intense; and robust governance, risk management and controls are paramount. There are investor relations to manage, non-executive directors (NEDs) to work with, and much more.

      All of which you must be ready for from day one.

      Once you’ve floated, your management team must be 100% focused on delivering results for investors. They can’t afford to be distracted by putting sticking plasters on issues that should have been resolved beforehand. So start your preparations well ahead of time – ideally two to three years before you intend to go public.

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      Regret nothing

      Much of the work involved will be valuable regardless of your IPO plans.

      It will focus the management team’s efforts on professionalising your processes and procedures in line with your business’s growth. It’s ‘no-regrets’ work, that will be of benefit even if you don’t eventually float, or if you go on to choose an alternative exit route.

      5. Build team capability and capacity

      • Assess your bandwidth

        Given the scale of work, ask yourself: do you have the resources to cope with preparing for IPO while maintaining day-to-day operations?
         

        In most cases, the answer’s no. For instance, accounting and reporting processes often fall short. Being set up for ‘business as usual’, they can’t produce the additional financial information for investors on top.

         

        Pinpoint the extra capability and capacity the firm will require, and build that up ahead of time.

      • Lean on the experts

        While gauging your headroom, look for any blind spots where you’ll need to bring in external expertise.

         

        Advisors – accountants, lawyers, corporate finance consultants – know the IPO process inside out. They can make an enormous difference to the preparation for, and execution of, your transaction.

         

        They can assess your readiness for IPO, set priorities, and identify any red flags. And their specialists can take much of the technical and project management work off your plate, freeing up your executives to meet prospective investors and sell the equity story.
         

        They’ll also bring an independent eye to proceedings, which helps if stumbling blocks emerge. Their expert input can remove some of the judgement and subjectivity from potentially tricky situations.
         

        Close collaboration is the key to working with your advisors: treating them as part of the team from the off will accelerate the IPO journey.

      Final word

      A couple of additional pieces of advice.

      First, plan well ahead, and start preparing as early as possible. Once you decide to float, you’re still up to three years away from being ready for the transaction. And there’s plenty you can – and should – begin working on straight away.

      And finally: enjoy the journey. For many management teams, going through an IPO is a once-in-a lifetime experience. Yes, it’s arduous. But the sense of pride and achievement is indescribable, as your company appears on that stock-exchange ticker for the first time.

      So embrace the process, and just as importantly, make the most of life as a publicly owned company. You’ll have earned it.

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      Rob Crowley
      Rob Crowley

      Partner at UK Capital Markets Advisory Group

      KPMG in the UK

      Svetlana Marriott
      Svetlana Marriott

      Head of UK Capital Markets Advisory Group

      KPMG in the UK

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